VZCZCXRO0493
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHLO #2862/01 3521531
ZNY CCCCC ZZH
P 181531Z DEC 09
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 4473
RUEKJCS/SECDEF WASHDC PRIORITY
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 04 LONDON 002862 

NOFORN SIPDIS

 E.O. 12958: DECL: 12/17/2019 

TAGS: PGOV PREL MOPS MARR MCAP UK

SUBJECT: MOD ANNOUNCES PLUS UP FOR AFGHANISTAN SPENDING -- MATCHED BY CUTS IN OTHER AREAS REF: LONDON 2768 

Classified By: Political Minister Counselor Greg Berry for reasons 1.4 b and d

1.(C/NF) Summary. Defense Secretary Bob Ainsworth announced December 15 a GBP 900 million Ministry of Defense (MOD) package spread over three years of "enhancements" for operations in Afghanistan. Key elements of the package include 22 new Chinook helicopters, with the first 10 planned to arrive in 2012 or 2013 and improvements to anti-improvised explosive devices (IEDs) activities. In addition to the MOD package, Treasury "Reserve" funding of GBP 280 million will pay for additional vehicles, weapons, and other assets. The MOD's GBP 900 million plus-up for Afghanistan operations comes at the cost of significant cuts to the MOD, mainly hitting the air force and navy. Cost-cutting measures include closing an air base, decommissioning two navy vessels, laying off civilian employees and slowing recruitment of troops, and withdrawing Nimrod MR2 surveillance planes from service more quickly than planned. The cuts reflect what the MOD acknowledges are "challenging financial pressures," but asserts that "our forces in operations remain the top priority" and that the defense budget has been "reprioritized to support the Afghanistan operation." Previously, funding for the UK's military commitment in Afghanistan had come from a contingency fund; henceforth, most defense funding for Afghanistan will come from the MOD's current operating fund.

2.(C/NF) Summary Continued. The MOD's decision to fund new purchases for Afghanistan out of the existing budget shows how dire the current fiscal situation is for HMG -- and is a harbinger of the tough choices ahead. Many MOD insiders and defense analysts predict that the cuts announced by Ainsworth December 15 are just the tip of the iceberg -- and that the next several years will see more cuts to the MOD's core operating budget, negatively affecting acquisition, training, and operations. A National Audit Office (NAO) report released the same day as Ainsworth's announcement criticizes MOD's decision to slow defense acquisition projects for short-term savings that generate long-term costs; the NAO Head criticized the MOD's "multi-billion pound budgetary black hole which it is trying to fix with a 'save now, pay later' approach." Both HMG leaders and senior Conservatives agree on the need for a Strategic Defense Review (SDR), a thorough analysis of the military capabilities the UK needs to meet its foreign policy goals, soon after the spring 2010 general election. A bipartisan interagency Whitehall team is presently in the final stages of drafting a green paper, a process which began in July 2009 and is the prelude to the SDR. End Summary.

 900 Million Pounds for Afghanistan... -------------------------------------

3.(SBU) Defense Secretary Bob Ainsworth announced December 15 a GBP 900 million package spread over three years to boost operations in Afghanistan. The package consists of what the MOD characterizes as "enhancements" to efforts to improve the troops' safety and operational capacity. The most prominent element of the package is 22 new Chinook helicopters (manufactured by Boeing), with the first ten slated to arrive in Afghanistan by 2012-2013. The Chinook fleet would increase in size from 48 to 70 airframes and would fly alongside Merlin helicopters that arrived in Afghanistan in November. (Note: Critics of HMG's prosecution of the war effort have repeatedly urged the HMG to send more helicopters to Afghanistan. A common response of defense analysts to the Chinook plus-up has been "better late than never," with many noting that the armed forces could have used the Chinooks during the last several years of combat operations and that the helicopters will not be ready until at least 2012, when it is hoped that British troops will have begun withdrawing from Afghanistan as the Afghan security forces grow stronger. End Note.)

4.(U) Other key elements include: an additional C-17 military transport aircraft to strengthen the air bridge, for a total of seven C-17s; improved efforts to counter improvised explosive devices (IEDs), particularly intelligence and analytical capabilities; increased funding for intelligence, surveillance, target acquisition and reconnaissance (ISTAR) capabilities; making equipment such as state-of-the-art body armor and night-vision goggles available to 50 percent more troops; improved equipment for communications between troops and commanders; and improvements for the Hercules C-130J fleet of military transport aircraft.

5.(U) In addition to the MOD package, Treasury "Reserve" LONDON 00002862 002 OF 004 funding of GBP 280 million will pay for additional vehicles, weapons, and other assets. Treasury funding will pay for a 31 percent increase in Husky tactical support vehicles and a 40 percent increase in Jackal vehicles to be deployed to Afghanistan. The Treasury will also fund equipment to combat the IED threat. 

...But Cuts Elsewhere ---------------------

6.(SBU/NF) The plus-up for Afghanistan operations comes at the cost of significant cuts to the MOD, mainly hitting the air force and navy. The cuts reflect what the MOD website acknowledges are "challenging financial pressures," but asserts that "our forces in operations remain the top priority" and that the defense budget has been "reprioritized to support the Afghanistan operation." The MOD asserts that the funding cuts are "not linked directly to operations." The MOD will reduce the number of Harrier jets by one squadron, leaving four squadrons, and the remainder of the aircraft will be moved to RAF Wittering, resulting in the closure of RAF Cottesmore. The Nimrod MR2 surveillance plane will be taken out of service in March 2010, 12 months earlier than planned, and the introduction of the Nimrod MRA4 will be delayed until 2012. The MOD will withdraw from service earlier than planned one survey ship and one minehunter. The navy will retire sooner than planned older Lynx and Merlin Mk1 helicopters, prior to the transition to Wildcat and Merlin Mk2 helicopter. There will be a 2,500 person reduction in MOD personnel, potentially including some layoffs of civilian personnel but primarily by not replacing people who retire or resign. (Note: For further details on plus-ups and cuts, see http://www.mod.uk. The decision to cut Nimrod follows an official report published in October that faulted the MOD for sacrificing safety to save money on maintenance of the Nimrod fleet. One of the RAF's 11 Nimrods burst into flames in Afghanistan in 2006, killing 14 servicemen. End Note.) 

A Break With Tradition ----------------------

7.(SBU) Although the Afghanistan spending package is welcome news for troops on the ground in Afghanistan and responds to public pressure on HMG to provide more resources, especially for helicopters, anti-IED efforts, and other measures to protect soldiers, HMG's decision to fund the war from the MOD's core budget marks a break with tradition. Previously, funding for the UK's military commitment in Afghanistan had come from a contingency fund established to fund the war effort; henceforth, most defense funding for Afghanistan will come from the MOD's current operating fund. Michael Clarke, Director of the Royal United Services Institute (RUSI) and a member of Prime Minister Brown's National Security Forum, described the cuts announced by Ainsworth as a watershed moment, reflecting an unprecedented crisis in defense funding. He observed that "We are now paying for a war out of current expenditure. It hasn't happened before in the modern era...The assumption has been for the last 30 years that wars are paid for out of central funds and the MOD money is (used) to run itself as a core service, to keep the service in being..." Malcolm Rifkind, a Conservative Defense Secretary in the 1990s used stronger language: "It is deeply dangerous, never happened in the past and has the most ominous implications for the integrity of our armed forces. For many years, both parties have agreed that if you're fighting a war, the costs of that war are met out of the contingency fund."

 A Tory Rebuke -------------

8.(SBU) Conservative Shadow Defense Secretary Liam Fox observed in an op-ed in the December 17 Guardian that until Ainsworth's announcement the MOD had asserted that "the Treasury reserve is paying for the full cost of operations in Afghanistan." Fox asserted that Ainsworth's announcement of a plus-up for Afghanistan at the expense of other MOD spending meant that the MOD's "core budget is being raided to pay for current operations...The government is mortgaging our current and future security to pay for the shortfall in current operations." Fox faulted several of the cuts used to fund the Afghanistan spending, citing, for example, the decision to retire a mine-hunting vessel, "one of the main maritime capabilities America appreciates the most from the Royal Navy." 

MOD's "Budgetary Black Hole" ---------------------------- LONDON 00002862 003 OF 004

9.(SBU) Ainsworth's announcement fell on the same day as the release of a report by the National Audit Office (NAO) which found that the current cost of 15 major military projects has risen by GBP 3.6 billion, compared with the expected costs when the investment decisions were taken, with extensive delays on most projects. NAO Head Amyas Morse asserted December 15 that the MOD "has a multi-billion pound budgetary black hole which it is trying to fix with a 'save now, pay later' approach." The audit notes that the decision to slow projects for short term savings generates long-term costs. In 2008-2009, for example, "costs on the 15 major defense projects examined by the NAO increased by GBP 1.2 billion, with two-thirds of this increase (GBP 733 million) directly due to the decision to slow projects." The report cautions that "unless the MOD addresses the underlying budgetary and governance issues, it will not consistently deliver value for money nor, vitally, will the operational benefits of expensive new capabilities be available to the Armed Forces in a timely manner or in the numbers originally planned." The NAO report gibes with the conclusions of the independent "Gray Report," published in October, which is acutely critical of British defense acquisition. 

What's Next? ------------

10.(SBU/NF) Both HMG leaders and senior Conservatives agree on the need for a Strategic Defense Review (SDR), a thorough analysis of the military capabilities the UK needs to meet its foreign policy goals. They agree that the SDR should occur soon after the spring 2010 general election (exact date TBD). A bipartisan, cross-Whitehall team is presently in the final stages of drafting a green paper, a process which began in July 2009 and is the prelude to the SDR. The Green Paper will offer a detailed examination of the role of the British Armed Forces and what their objectives should be in the medium term; its conclusions will inform the eventual White Paper that will state the conclusions of the SDR.

11.(SBU/NF) The last SDR was completed in 1998 and has provided the underlying parameters of HMG's defense goals and capabilities ever since. The 1998 SDR includes commitments to Britain's retention of an independent, strategic nuclear deterrent (Trident) and to an expeditionary armed forces playing an active role in NATO and other multinational deployments. Labour and Conservative leaders agree that both these principles should remain underpinnings of British defense. Prime Minister Brown has reaffirmed his commitment to Trident but said that the number of submarines providing a platform for British warheads could be reduced from four to three, under the right circumstances. (The head of the Royal Navy, Admiral Sir Mark Standhope, has publicly said that the navy will be able to guarantee continuous deterrent patrols only if HMG agrees to keep four subs.) 

Comment: --------

12.(C/NF) The one thing that politicians and defense experts agree upon is that the time is ripe, even overdue, for a SDR. They stress that the 1998 SDR is outmoded and provides a poor basis for planning since it neither envisaged the asymmetric threats posed by a post 9/11 world nor did it anticipate the overstretch of the armed forces as the result of fighting two wars at once, in Afghanistan and Iraq. Most analysts concur that the proactive and interventionist foreign and defense policies, which were the foundations of the 1998 SDR and continue to shape the UK's planning assumptions, have been unmatched by UK defense spending, which fell from about four percent of GDP in the 1960s, 1970s and 1980s, to about 3.5 percent through the 1990s. Since 2000, defense spending has flatlined at about 2.5 percent of GDP, despite the significant toll on personnel and equipment as a result of the UK's deployments to Iraq and Afghanistan.

13.(C/NF) Comment Continued: Additionally, the UK's ambitious procurement programs have not been matched by allocations to the defense budget -- and big ticket projects, such as two new aircraft carriers, have been repeatedly delayed as a result of the counterproductive "save now, pay later" mindset criticized by the National Audit Office. As the NAO notes, the MOD has successfully reduced the deficit between the defense budget and planned expenditure by GBP 15 million, but a shortfall of between GBP 6 billion and GBP 36 billion remains. In personnel terms, the UK military has shrunk: on the eve of Desert Storm, the armed forces had 305,800 regular forces on active duty. As of 1 April 2009 LONDON 00002862 004 OF 004 (when an audit was last done), total trained regular forces numbered 188,400.

14.(C/NF) Comment Continued: Many MOD insiders and defense analysts predict that the cuts announced by Ainsworth December 15 are just the tip of the iceberg -- and that the next several years will see more cuts to the MOD's core operating budget, negatively affecting acquisition, training, and operations. Both Labour and Conservative leaders are committed to maintaining close defense ties with the U.S., so that our forces will remain ready to fight along side each other. Indeed, Shadow Defense Secretary Liam Fox recently told the Ambassador that close U.S.-UK ties will remain strategically central to UK foreign policy regardless of which party is in power in the UK, although he stressed that the relationship would be especially close in the defense sphere under Tory leadership (ref). However, tough budget decisions are ahead. The MOD's decision to fund new purchases for Afghanistan out of the existing budget shows how dire the current fiscal situation is for HMG -- and is a harbinger of the tough choices ahead. Visit London's Classified Website: XXXXXXXXXXXX 
Susman